Steve Hamilton is a Tampa native and a graduate of the University of South Florida and the University of Missouri. He now lives in northern Kentucky. A career CPA, Steve has extensive experience involving all aspects of tax practice, including sophisticated income tax planning and handling of tax controversy matters for closely-held businesses and high-income individuals.

Saturday, February 21, 2015

An Interim Report On Tax Season

I was
speaking with a colleague earlier this week who wants to set up a tax storefront.
That means a place that prepares taxes, probably only individual taxes and only
for a few months a year. Think H&R Block, but without a franchise involved.
I suspect he would be successful, but like any business start-up the cash drain
is difficult to pull off.

And he asked
me if tax seasons are getting “harder.” Yes, he is younger than me. I am
getting to that age.

I hesitated
on his question, as my long-standing position is that the accounting firm
determines the difficulty of the season for its employees. Some firms do a good
job, and other firms simply do not care. It is one of the reasons that the
average career of an accountant in a CPA firm is little more than that
of an NFL player.

Bet you did
not know that.

Still, there
are issues for tax practitioners that did not exist a few years ago – or even
last year.

I was
speaking this week with a good friend about whether it was safe for him to prepare
his personal tax return on TurboTax. Depending upon the year and other factors,
he prepares a draft return and I review it for him. Last year he changed jobs
and states, so I expect I will review his return this year.

Why TurboTax?
It turns out that a number of states experienced suspicious electronic filing
activity this year and, upon investigation, in many cases the electronic return
was filed using TurboTax.

Let’s be
fair, though. That does not mean that the information came from TurboTax. There
have enough recent breeches of data security that the information may have come
from elsewhere.

Intuit, the
parent of TurboTax, responded aggressively to this development, as you would
imagine. A number of states, including Kentucky and Minnesota, temporarily halted
the processing of electronically filed returns. Meanwhile TurboTax encouraged its customers to
log-in and review their accounts. They instructed their customers to review
their direct-deposit information specifically.

Makes sense.

Why the
states? In the past, fraudsters have targeted the IRS rather heavily. The IRS responded
with stricter identity measures, including lockdowns on any tax refunds and the
required use of security passwords. Florida was so hard-hit, for example, that
one can request a federal security PIN number under a pilot program – even if
one was not the victim of identity theft.

It may be
that the fraudsters saw easier picking elsewhere.

Then we have
the information documents to prepare a tax return.

I am reading
that the federal health insurance marketplace has sent out approximately
800,000 erroneous Forms 1095-A. This is not insignificant and represents approximately
one-in-five people using the marketplace. These forms are new and are issued by
the exchanges to individuals who purchased insurance there. They include
information on any government subsidy, so they are an important tax document.For example, even if you are not otherwise
required to file a tax return, you must file if you received a subsidy.

The error
concerns the “benchmark plan” premium and doesn’t concern the amount of subsidy
itself. The “benchmark plan”” is the second lowest cost silver plan for where one
lives, and it is part of the arithmetic to settle-up whether one received too
much or too little subsidy. As you know, if you received too much subsidy you
have to pay it back.

Taxpayers who
received Forms 1095-A are encouraged to wait until March before filing their
individual tax returns. Not a problem. Surely these are people who do even meet
with their tax advisors until March.

Meanwhile,
it has finally dawned on some politicians that people may not realize the effect
of ObamaCare on them until they file their 2014 taxes. There will be rude
surprises for those who did not acquire insurance and now have to pay the
penalty. Perhaps they acquired insurance
but were over-subsidized, and now they have to repay the excess subsidy.

Wait until
they learn that the penalty will go up every year.

Then there is
a problem with the timing of obtaining health insurance. ObamaCare requires
everyone to have insurance in place by February 15 – which of course is two
months earlier than April 15, when taxes are due. That may be the first time people
understand this Rube Goldberg contraption foisted 50-shades-of-grey style upon
society. What happens then? Well, in addition to owing the penalty for 2014 it
would appear that one would also owe a penalty for some part of 2015 – at least
until one can acquire health insurance. The penalty goes month by month.

Many politicos
– not the brightest class emerging from natural selection – are now up in arms,
demanding that deadlines be changed, penalties ameliorated and so on. I suppose
there is a nuance there, but it escapes me.

Somewhat on
cue, on February 20 the Center for Medicare and Medicaid Services declaimed
that the enrollment period shall reopen from March 15 to April 30.

To which I have
two questions:

What happened to the period from
February 15 to March 15?

Why is the Center for Medicare and
Medicaid Services changing the law?

On February 13 - which seems a lifetime ago at this point - the IRS finally provided some guidance on how to comply with the new repair Regulations effective with the 2014 tax returns. Considering that their first pass at the Regulations required almost everyone with real estate or other depreciable property to file for a change in accounting method - a change which the IRS mandated, by the way - the IRS then had the temerity to say that we also had to formally ask them for permission to change. I had and have a stack of real estate partnership returns in my office waiting on their guidance. Forests have been felled by tax practitioners divining for weeks and months what the IRS wanted from us this year in order to comply with their new Regulations.

Do you ever wonder if our government is suffocating under the weight of people who - having accomplished little more than going to a name school or playing at politics - think they now have the chops to bludgeon those of us who actually accomplish something every day?

About Me

Thirty years years in tax practice. It's a long time, and I have seen virtually everything short of the fabled tax-exempt unicorn. I was raised in Tampa, went to school in Missouri, taught at Eastern Kentucky University, lived in Georgia, got pulled to Cincinnati when I married, have in-laws in England and a daughter going to the University of Tennessee. I am not sure where I will wind up next, but I hope there is better weather.